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The airline industry is forecast to benefit significantly from the drop in fuel prices, and part of the improvements will be passed on to consumers in the form of significantly lower fares, the International Air Transport Association (IATA) forecasts.

The association believes airlines will make a combined profit of $25 billion in 2015, up from $19.9 billion this year, $10.6 billion in 2013 and $6.1 billion in 2012. “We see falling oil prices to give a great boost both to the industry and consumers,” IATA Chief Economist Brian Pearce said at the organization’s annual global media day in Geneva, Switzerland. He also stressed that the improvements are “not quite enough” to make the industry financially sound. Only U.S. airlines are reaching the level of profitability that allows them to recover the cost of capital.

IATA believes traffic will grow by 7% as measured in revenue passenger miles (RPM). That compares to 5.7% in 2014 and 5.4% last year. Capacity will rise by 5.5%, IATA forecasts. However, the growth comes at a price and that is falling fares. Airlines expect ticket prices to go down by 5.1% on average. Overall revenues are to grow by 4.3% to $823 billion.

“I am not terribly worried about overcapacity,” IATA Director General and CEO Tony Tyler said. He still sees a lot of developing markets that will justify the added capacity. “A lot of it is driven by the expected strength in air travel,” Pearce said. “There is a need for these aircraft.” He pointed out that air travel has grown much faster than one might have expected given the general development of world GDP. “All the growth has been in the emerging economies in Asia where people have travelled less in the past,” Pearce argued.

According to IATA, airlines will spend $192 billion on fuel next year, 5.6% less than this year in spite of the fact that they will actually use 5.1% more fuel given the increase in flights planned. The share of fuel in overall operating costs is going down from 30.1% in 2013 and 28.6% in 2014 to 26.1% next year. IATA’s forecast is based on an average jet fuel prices of just under $100/barrel and $85 for the Brent crude oil price. The breakeven load-factor is going down from 63.7% to 62.8%.

As a result of falling fuel prices, aircraft fuel efficiency improvements will slow down from 1.8% in 2014 to 1.6%. IATA says that is because “less fuel efficient aircraft are kept in service.”

Airlines will invest around $180 billion into 1,700 new aircraft coming up for delivery in 2015. Over half of them will replace older aircraft, however overall the world fleet is to increase by 900 aircraft and will reach almost 27,000 by the end of the year. The average aircraft size is going up further to 139 seats in 2015 – compared to 136 in 2014 and 134 in 2013.

Next year’s airline profits will be distributed unevenly in terms of geography. North American airlines are forecast to make a $13.2 billion net profit, up from $11.9 billion this year. European airlines will see some improvement from $2.7 billion to $4 billion, Latin America will go up from 700 million to around 1.0 billion, the Middle East will see a rise from 1.1 to 1.6 billion. Performance of the Asia-Pacific airlines will improve from $3.5 billion to $5 billion.

Discuss this Article 1

It would be nice to see Qantas pass on some of the effect of a reduced oil price, but no.... not Qantas.
They have even announced that they will continue with the fuel "surcharge" that they brought in to cover the escalating fuel prices a few years ago. Wouldn't be needed if management hadn't made so many bad decisions in the past